Stock Watch Thursday, 21 February 2013

The markets headed south on Wednesday as investors digested Fed comments, housing numbers and the potential negative impact on the economy that a political showdown in Washington could bring. Comments released from the Fed this week indicated that an easing of the stimulus measures that have been in place since the depths of the financial crisis may be forthcoming. As noted earlier this week, investors pretty much shrugged off similar comments in January, but a re-emphasis of those statements this week - coupled with the recent slowdown in housing numbers - caused enough concern among investors to spark the round of profit-taking that led to Wednesday's decline.

Budget negotiations in Washington also look to be at a standstill, another cause for alarm over the short term. Severe spending cuts could be in store come 1 March, should an agreement not be reached in D.C. As the politicians continue to draw lines in the sand, it's looking more likely every day that a deal might not be reached this time around, as was the case during the last 'fiscal cliff' scenario. Cautious investors predicting a stalemate in negotiations may be prepared to pull some money from the table now in anticipation of an broad market slip, as indicated by Wednesday's drop.

Given the recent negative spin on the above-mentioned topics, this week's remaining trading days could bring volatility and red, especially if it looks like no budget agreement is predicted in Washington. Additionally, with the bulk of the earnings season now in the past, any potential dissipates of relying on a continuous run of to keep the mood merry and markets afloat. Now, its looks as if the recently-set five year market highs may be all investors get for the short term, as momentum and economic news does look strong enough to push the record highs that the pundits were predicting could be breached just a few short weeks ago.

As always, there are plenty of individual stocks and stories to keep an eye on while the major news plays out. Here are just a few of them for 21 February, 2013 ...

Explosive Trace Detection (ETD) / Global Defense:

Implant Pullback Brings In Volume: It Could Just Be A Matter Of Time

Following in line with the volatile moves of the past year, shares of Implant Sciences (IMSC.PK) dropped fairly rapidly this week, although the move to the downside brought with it an increase in volume that indicates long investors are using this opportunity to accumulate for a potential rebound over the short term, and for growth over the long run. Implant, as we know, received very significant news earlier this year when the United States Transportation Security Administration (TSA) approved Implant's Quantum Sniffer (QS)-B220 explosive trace detector for use in air cargo screening. Implant is the only U.S. company to receive such an approval. Implant officials and investors speculate that the approval will form the foundations from which a robust growth strategy can be put into place, especially considering the global boom in the explosive trace detection (ETD) industry.

Although shares initially spiked fairly significantly following the approval announcement, the price momentum has slowed as volume dropped off, too, hence the pullback we've seen this week. As mentioned above, however, the boost in volume over the past couple of days could be indicative that at least some investors are keen to take advantage of the pullback, given the company's positioning as a relatively new player in a booming industry.

For instance, Implant announced on Wednesday another sale of its Sniffer products to a new customer in the Middle East. While most of the attention over there is paid to the likes of Syria and other hot spots, recent news headlines also indicate that there may be a need for the non-radioactive ETD products offered by Implant in other less-hostile countries in the region, too, for use in protecting both civilian and government infrastructure from a wide variety of explosive devices being placed in well-populated locations. The specifics of Sniffer sales to global locations are not always made public, most likely to keep the methods and procedures of the security services purchasing the equipment from becoming public to those who may be inspected, but there is little doubt that Implant has a very large market to infiltrate globally - and the high mobility and non-radioactive nature of its products may give the company a significant advantage over the competition in these markets. After all, we all know that low-level rent-a-cops sprinting around a vehicle with a mirror to look underneath a vehicle is not going to get the job done alone.

Other factors that may have contributed to a drop-off in price and trading volume over the past weeks may be based on investor concerns over the lack of big orders announced domestically as a result of the TSA approval - with concerns of financing and debt payments also on the radar. Many speculated that an approval announcement would result in an immediate flurry of new sales announcements, too. That hasn't quite played out over the press release wires, of late, but it's still been just over a month since the approval - business acquisitions take time, especially in the government sector - and it's also worth bearing in mind that Implant has a history of announcing sales once the sales are finalized and shipped, not necessarily when agreed upon. Also consider that much of the US government is on a spending lock down right now, given the fiscal fiasco created by our beloved politicians. That can hurt small contractors or companies like Implant, who may be awaiting funding to be in place for deals to become consummated. That doesn't say that deals are not being negotiated and finalized.

We are still very early in this game.

Funding and debt repayments are always a concern for any small company. Investors are wise to assess such variables while also assessing overall growth potential. In the case of Implant, the company has nearly thirty million dollars in debt being carried forward. The company came to an agreement with its primary secured lender, DMRJ Group LLC, late last year to extended much of that debt until the end of March of this year. The extra time allowed developments to unfold, such as the TSA approval, and for the future to become clearer. DMRJ and Implant have built a solid working relationship and there have been no indications to believe that the relationship would change, just as more significant sales growth is starting to emerge. If the most recent earnings report is an indication, Implant's growth potential is just starting to be realized.

Also beware that companies trading on the pink sheets tend to attract more investors of the trading mindset, and not necessarily the long-term minded folks. That can play a large role in the volatility of a stock and is likely to be a primary cause of IMSC's volatile rides since approval. That said, those looking towards the long term can make out pretty well by buying on the dips and having the patience to see the story out, but it's always a good idea, in my opinion, to maintain somewhat of a trading mindset and take advantage of some of those spikes, too, in order to bank realized money. Computer screen money can disappear pretty quick if the trigger finger doesn't hit 'Sell' once in a while.

It's also worth noting that Congressman John Tierney visited Implant offices and production plants earlier this month, so indications are that Washington is taking notice. It could just be a matter of time for this one.

Healthcare, Biotech, Pharmaceutical:

AEterna Zentaris Trial Start Brings Pipeline To Light

AEterna Zentaris (NASDAQ:AEZS) shares closed three percent higher on Wednesday - after having traded even higher during the morning hours - when the company announced that the first patient had been treated in a Phase II trial testing AEZS-108 in the treatment of triple-negative breast cancer. AEZS-108 is also being investigated in Phase II trials for the treatment of prostate and bladder cancers, from which interim results are expected throughout 2013. Already establishing a proven record of success in other early to mid-stage trials, AEZS-108 is also being prepared for a near-term launch of a Phase III trial in the indication of endometrial cancer, according to the latest information published to the company's website. Wednesday's official announcement that patients are now being treated in the breast cancer trial provides yet another avenue for potential success. With the speedbump of last year's failed Perifisone Phase III colon cancer trial still fresh in the minds of investors, 108 offers investors another avenue of development to monitor for its potential.

That said, Perifisone is not exactly dead in the water yet, either. An independent monitoring committee is slated to analyze interim results from another Phase III Perifisone trial within the current quarter - this one in the treatment of multiple myeloma - and if the committee recommends that the trial continue, investors still skeptical after the colon cancer outcome may be reassured to take another chance on the product's future, potentially providing another near-term, late-stage trial catalyst that could potentially effect the share price. Bear in mind, however, that such reviews often measure safety, not necessarily efficacy, and are not an overall indication of eventual success, as Oncothyreon (ONTY) proved earlier this year. Nonetheless, another milestone met is always good for business and a trial recommended to continue at least indicates that it's worth it for the company to do so. The overall AEZS market cap indicates that investors are not ready to buy into the Perifisone story again, so any successes could quickly attract new investor interest.

Another near-term catalyst may be provided with the expected NDA filing for AEZS-130 as a diagnostic test for Adult Growth Hormone Deficiency. Although not expected to be a huge money maker, AEterna maintains world-wide rights to the product, which has previously been slapped with an orphan drug designation, and could provide a future revenue stream to assist in funding future and continued development.

A high-volumed run that materialized in conjunction with positive -although unrelated to AEterna - trial news from former partner Keryx Biopharmaceutics (NASDAQ:KERX) thrust shares to well above the three dollar mark earlier this year, but volume has since tapered off - along with the share price - as the day, swing and momentum traders banked quick profits and went looking for the next hot runner. As discussed in the IMSC write-up, such pullbacks following volatile trading patterns often leave investors with an opportunity to either re-load in anticipation of future catalysts or accumulate for the long term. With numerous catalysts pending for 2013 and with a relatively modest share price, in terms of speculative potential, AEZS could quickly approach and surpass its recent highs, should investor interest flow back in. Sustained increases are possible if AEZS-108 continues to produce solid results through its Phase II development. The pending Phase III endometrial trial would position AEZS as a 'Phase III' company moving forward. Still one to watch, especially given the recent price and volume pullback.

Briefly:

Any Disney Pullback Would Be Hugely Beneficial For Long Term Investors

As previously discussed, The Walt Disney Co. (NYSE:DIS) is positioning itself for the next era with the recent purchase of LucasFilm and the Star Wars franchise. That move, accompanied with other solid developments on the earnings and properties front, propelled DIS shares to a new 52 week high is recent trading. On Wednesday, however, shares slipped lower by two percent and have the potential to slip even further as the broad markets look to head south, given the discussion points mentioned in the open. Disney shares may be just as vulnerable to a slide as any out there if the market takes a downturn, and maybe even more so if investors start to their bank profits achieved when the stock hit its 52-week high.

It should at least be expected that DIS will trade in-line with the market as a whole, which could give investors looking to hold or buy the stock for the long term and/or retirement portfolio an opportunity to jump in at an opportune time if the markets do, in fact, experience a pullback. With a reinvigorated treasure chest of characters from Marvel and Star Wars joining an already-established legacy of television and movie personalities, Disney's recent 52-week highs could quickly be surpassed once the economy and the stock market picks up steam again.

The same cast of characters will also add appeal to the company's theme parks and cruise ships, keeping the behemoth Disney brand well alive. Any significant pullbacks could turn into a gift for long term investors looking for safer picks than the likes of the small caps we often discuss.

Roundup: International markets on Thursday followed the tone set Wednesday afternoon by U.S. markets and returned a whole lot of red, indicating that it could be a rough ride ahead for the remainder of the week. That said, the strategy we previously discussed of taking profits after the January run in order to bolster a reserve of sideline cash could start coming in handy as deals and opportunities emerge, should the market continue to slide. Although the housing numbers slowed, consumer confidence has dwindled and evidence is there that consumers are not spending as much money as the economy would like, it looks to have been the comments from the Fed that spooked investors most, with the gridlock in Washington playing just as much a role in putting investors on edge. This is not the time to panic, though. As demonstrated by the great collapse of 2008-09, attractive deals will emerge in any market and those with the time, patience and due diligence to find them can come out pretty well on the other end. Even if a pullback takes place and the market sinks a bit, along with the IRA balances and the 401Ks, investors should feel comfort in the fact that the global economy is in far better shape than it was during and immediately following the collapse; we're still on the upswing and pullbacks are just a part of the rebalancing act. They also offer up the opportunity to take advantage of those stocks that may be oversold because of unfounded fear, which could make for nice percentage gains later on down the road.

Disclosure: I am long DIS, IMSC.PK, AEZS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.